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Income Tax Appellate Tribunal, ‘A’ BENCH, CHENNAI
Before: SHRI CHANDRA POOJARI & SHRI G. PAVAN KUMAR
आदेश / O R D E R
PER G. PAVAN KUMAR, JUDICIAL MEMBER:
The appeal filed by the Revenue is directed against order of the Commissioner of Income-tax (Appeals)-6, Chennai dated
ITA No. 1931/Mds/2015. :- 2 -:
27.03.2015 for the assessment year 2008-2009 passed u/s.143(3) and 250 of the Income Tax Act, 1961(herein after referred to as ‘the Act’).
The Revenue has raised the following grounds of appeal:- 2.
‘’2.1 The learned CIT(A) erred in allowing advances written off to the tune of ₹39,37,127/- towards Advances paid to custom House Agent towards Freight for A.Y.2008-09.
2.2 The learned CIT(A) erred in relying on the decision of the Apex Court in the case of CIT vs. Mysore Sugar Co. Ltd (1962) 46 ITR 649 (SC) and held that advances which are written off in the books can be claimed as revenue expenses u/s.37(1) of the Act. 2.3 The learned CIT(A) ought to have appreciated the fact that in the relied on decision, the Apex Court has held that the expenditure was not in the nature of capital expenditure, was deductible as revenue expenditure. 2.4. The learned CIT(A) failed to appreciate the fact that as per the above Apex Court's decision, the expenditure in the nature of revenue can be allowed to be written off. In the instant case, the learned CIT(A) erred in allowing the entire advances to the tune of ₹39,37,127/-‘’.
The Brief facts of the case are that the assessee is in the 3. business of manufacturing and sale of automobile seating and interior systems and filed e-return of income belatedly on 11.03.2010 admitting total income of �33,34,33850/- and subsequently the case was processed u/s.143(1) of the Act on 23.03.2010. As per scrutiny
ITA No. 1931/Mds/2015. :- 3 -: norms under CASS, notice u/s.143(2) was issued. In compliance to notices, the assessee’s ld. Authorised Representative appeared from time to time and filed various details called for. The ld. Assessing Officer made addition of Prior period expenses, technical fees, expenses and advances written off. The issue in dispute being that the assessee has written off �43,09,757/- as Bad advances and claimed as Revenue expenditure. The Assessing Officer called for the proof and nature of such advances and whether the such advances were made in the normal course of the business. The ld. Authorised Representative submitted that amounts are non-recoverable bad debts in respect of employees who left services and advance for customs house agent and passed the respective entries in the books of account. The Assessing Officer considered information on record and made addition of advances written off �43,09,757/- as no proof was submitted alongwith other disallowancea and assessed total income of �36,59,81,930/- and raised demand. Aggrieved by the order of the Assessing Officer, the assessee filed an appeal before the Commissioner of Income Tax (Appeals).
In the appellate proceedings , the ld. Authorised Representative reiterated his submissions made before the Assessing Officer to the issue in particular of advances written off �43,09,757/-.
ITA No. 1931/Mds/2015. :- 4 -:
The assessee has submitted that advances are made in normal course of business and allowable u/s.37(1) of the Act. The submissions of the ld. Authorised Representative are considered by Commissioner of Income Tax (Appeals) are as under:-
Ground 9- Disallowance of advances written off amounting to INR 43,09,575/- 5.1 During the year under consideration, the company had written off certain advances which were not recoverable from the parties. Details of such advances written off are as under:
Sr. Amount (in Particulars No INR) Advances to Custom House Agent 1 3,937, 1 27 towards freight Advances to employees towards salary, 2 147,630 travel, etc. Deposit with American International 3 225,000 School Total 4,309,757
5.2 At the outset, we submit that the aforementioned advances given by the Appellant represented advance towards revenue expenditure and that the same were not given for the purpose of acquiring any capital asset. It may be noted that the advances were given by the Appellant in the normal course of its business and were incidental to carrying on of business and therefore, should be allowable as business loss under section 28 of the Act.
5.3 With regard to advances given to Custom House Agent (,CHA ') of INR 3,937,127as referred in serial no. (l) above, we hereby submit that the Appellant had given advances to CHA for clearance of import consignments on a regular basis. The Appellant has also deducted tax at source on such payment and remitted the same to government. The said advances were adjusted against the service invoices raised by the CHA as and when the invoices were raised. Some of the invoices received from the CHA were misplaced
ITA No. 1931/Mds/2015. :- 5 -: by the purchase department of the Company. In the absence of such invoices, the Finance department of the Company could not book CHA expenses in the accounts. Consequently, there was a debit balance of INR 3,937,127 in the CHA Account standing in the books of the Company at the end of the year, which could not be traced to invoices raised by the CHA. As a result, the Company had written off such advances. A copy of the statement of account for 'Advances - others', indicating the write off of advance amounting to INR 3,937,127 along with the break-up of Advances appearing in the Balance Sheet as on 31 March 2008 is enclosed as Annexure 5.
In this regard, reliance has been placed on the decision of the Hon'ble Chennai Tribunal in the case of ACIT v. Yubo Investments Co. Pvt Ltd (ITA No 807/Mds/2012), wherein the Hon'ble tribunal in its facts of the case has held that advance written off by the assessee as irrevocable is allowable as business loss under section 28 of the Act.
Your goodself would appreciate that the advances to CHA were made in the normal course of business and were written off in the books as the same could not be adjusted against the actual expenses incurred due to misplacement of relevant invoices. Therefore, same should be allowed as deduction under section 37 or alternatively under section 28 of the Act’’.
The ld. Commissioner of Income Tax (Appeals) considered the decision of Supreme Court in the case of CIT vs. Mysore Sugar Co. Ltd 46 ITR 649 and the provisions applicable for Bad debts u/s.28 and u/s.36(1)
(vii) of the Act and discussed in his order at length and concluded that amount subjected to TDS in earlier years and eligible for deduction for Bad debts and relied on the Supreme Court decision in the case of T.R.F. Ltd vs. Commissioner of Income Tax (2010) 323 ITR 397(SC) held that after 01.04.1989, it is not necessary for the assessee to ITA No. 1931/Mds/2015. :- 6 -: establish that the debt, in fact has become irrecoverable. It is enough if the Bad Debts is written off as irrecoverable in the accounts of the assessee. After elaborate submissions and discussions by the ld. Authorised Representative, the ld. Commissioner of Income Tax (Appeals) relying on the factual situation gave a finding that Bad debts written off on account of advance to custom clearing agencies �39,37,127/- and advance to the employees �1,47,630/- is allowable expenditure not only u/s.37(1) of the Act but also u/s.28 and directed the Assessing Officer to allow the claim of Bad debts and partly allowed the appeal. Aggrieved by the order of the Commissioner of Income Tax (Appeals), the Revenue has assailed an appeal before the Tribunal.
Before us, the ld. Departmental Representative reiterated 5. his submissions that the Assessing Officer at the time of assessment has called for the details and such details were not provided to the Assessing Officer inspite of giving sufficient time to the assessee. The information which was submitted before the Commissioner of Income Tax (Appeals) is neither put before the Assessing Officer for comments nor an opportunity was given to Assessing Officer to verify the genuiness of advances written off. The assessee has not produced any documents like vouchers, journals and ledger accounts
ITA No. 1931/Mds/2015. :- 7 -: extracts to prove the bonafide claim. The ld.CIT(A) relied on the grounds and also on the materials submitted before him in the appellate proceedings and unilaterally concluded without going into the genuiness of the material, allowed the assessee’s appeal.
Therefore, the order of the Commissioner of Income Tax (Appeals) is bad in law and passed without any basis except on judicial decisions relied which are distinguishable and pleaded for set aside of the order of the Commissioner of Income Tax (Appeals).
Contra to the arguments, the ld. Authorised Representative 6. of the assessee reiterated his submissions made before the Assessing Officer and Commissioner of Income Tax (Appeals) and submitted that all the information submitted in the appellate proceedings are as per law. The ld. Commissioner of Income Tax (Appeals) verified the provisions applicable and granted relief relying on the decisions of Tribunal and High Courts and prayed for dismissing the appeal.
We heard the rival submissions of both the parties, perused the material on record and also judicial decisions cited. The ld. Departmental Representative argued that the order of the Commissioner of Income Tax (Appeals) is contra to the law and facts
ITA No. 1931/Mds/2015. :- 8 -: as ld. Commissioner of Income Tax (Appeals) has not provided documents for verification or called for the remand report from the Assessing Officer. Inspite of fresh evidences and no opportunity was provided to the Assessing Officer to verify the genuiness of advances written off relating to custom house agent for freight in financial year 2008-2009. The ld. Authorised Representative submitted that considering the magnitude of the turnover, the amount written off is very meager and also furnished ledger accounts, statement of deposits for the period from 01.04.2003 to 31.03.2008 with entries of advances written off reflected in the accounts statements. The Assessing Officer was deprived of the documents and also evidences filed before the Commissioner of Income Tax (Appeals) as violation of Sec.46(1)(A) of Income Tax Rules. Considering the facts and circumstances and also the fresh evidences filed, we are of the opinion that disputed issue should be re-examined with available materials filed in appellate proceedings and before us therefore we set aside the order of the Commissioner of Income Tax (Appeals) and restore the disputed issue for limited purpose to the file of the Assessing Officer to verify the claim and genuiness of the transactions as per law and the Assessing Officer should provided adequate opportunity of ITA No. 1931/Mds/2015. :- 9 -: hearing before passing the order on merits.
In the result, the appeal of the Revenue is partly allowed for 8. statistical purpose.
Order pronounced on Wednesday, the 3rd day of February, 2016, at Chennai.